Kushlan Sugathapala: Unemployment insurance makes sense on every measure

Our current regime punishes the unemployed for being unwitting victims of our economic policies by inflicting extreme financial hardship. Photo / Martin Sykes, File

OPINION

Both political wings attack the proposed unemployment insurance scheme.

The right objects to its cost, and the left argues all beneficiaries should be treated equally.

So why do most developed countries have it, and the heads of our largest employer and employee advocacy groups support it?

“The current support system has severe outcomes for many workers and is one of the weakest in the OECD... A substantially improved system for displaced workers is vital... We support proposals for a ‘social insurance’ type of model to provide income replacement at a rate that is a significant improvement on current social welfare entitlements,” said a joint statement from Kirk Hope, CEO of Business NZ and Richard Wagstaff, President of the Trade Union Congress.

According to psychologists, becoming unemployed shocks the system, similar to a divorce or a severe injury. Unemployment is followed by a drastic reduction in the standard of living and financial hardship. Depression and mental health issues follow, especially if unemployment is long, and deprivations deepen.

Illustration / Rod Emmerson

The current scheme is outdated, conceived when our economy ran with almost no unemployment and one salary could support a family.

Today, with 3.3 per cent unemployment, we have worker shortages, and employers want immigration floodgates open.

We have 97,000 New Zealanders out of work, of whom 37,000 are 15-24 years old. New Zealand’s current unemployment benefit ranks 30th out of 35 OECD countries.

Why are we punishing the unemployed, unwitting victims of our economic policies by inflicting extreme financial hardship? Employers have unrestricted flexibility to restructure their business; employees should have a decent safety net.

Severe financial difficulties force many into less productive jobs. (An estimated annual loss to the economy of $3b).

What’s it currently like for typical hard-working middle-class Kiwi families with two children? Tama and Pamela earn around the median wage; Tama makes $70,000, and Pamela $55,000 (combined take-home pay after tax of $1918 per week). They have a mortgage of $500,000, and repayments of $576 per week ($30,000 per annum) take the largest chunk of their salaries.

Tama is made redundant but doesn’t qualify for income support as Pamela’s salary is too high. They are left with Pamela’s take-home pay of $860 per week, an accommodation supplement of $220, and a Working for Families Tax Credit of $234 per week. The $1342 weekly left after paying the mortgage – food for a family of four, electricity, rates, running Pamela’s car, etc. has shrunk to $738, a drop of 45 per cent.

The proposed scheme will cushion the impact by paying 80 per cent of a salary for six months (12 months if caused by disability, or approved retraining is required).

The plan has some good features. A relatively short six months minimum employment period to qualify will help the young and those in insecure work. It reflects the modern work environment by covering all employee types, including casuals and gig workers.

On the flip side, it is shorter than most international schemes. In New Zealand, approximately 30 per cent are unemployed for more than six months, dropping to 11 per cent over a year. It doesn’t provide more time to find a suitable job for many and a future where more retraining is envisaged.

The most generous schemes, in Belgium and Switzerland, pay 70-90 per cent for two years. Germany’s middle-of-the-road plan pays 60 per cent for two years.

There are many contentious discussion points. The most significant is the exclusion of resignations, including constructive dismissal and terminations for poor performance. The scheme covers only ‘”involuntary” terminations, while 25 per cent of the unemployed are resignations.

Is resigning to relocate with a partner or leaving a toxic relationship voluntary?

Kushlan Sugathapala. Photo / Supplied

Disengaged workers are unproductive and potentially disruptive in the workplace. Partial loss of work is excluded while covering the loss of second jobs for ACC claimants and workers with two part-time jobs.

Someone already earning 80 per cent on ACC can cope better than workers losing half their primary income.

Also, it doesn’t cover employees coming off a fixed-term contract or seasonal work. Assuming that unemployment on completion of a contract is voluntary is farcical.

The argument for improving other welfare benefits has merit; current benefit levels are inadequate to provide a life with dignity. One solution would be to use money freed from over $2b annually spent on the current unemployment scheme.

Some thought must be given to assisting youth, almost 40 per cent of the unemployed.

The young need jobs and apprenticeships more than a benefit. Apprentice numbers increased by nearly 50 per cent from 2019 to 2021, with the introduction of Apprenticeship Boost in 2020. The scheme should be evaluated before it expires in December.

A well-designed, future-proofed system will improve productivity; provide more opportunities for upskilling and resilience against recessions. It also helps avoid severe issues that will prolong periods out of work and reduce inequities for Māori and Pacifica with the highest unemployment rates.

I hope National and Labour will rethink killing a programme backed by employers and trade unions. We need to alleviate severe outcomes for workers left high and dry by our economic policies.

- Kushlan Sugathapala is a researcher and writer on social justice issues.